European economist says Russia's economy is strained due to the Ukraine war and sanctions

Yahoo

13-05-2025

BRUSSELS (AP) — Russia's economy is under growing strain as its invasion of Ukraine drags on and Western sanctions are undermining President Vladimir Putin's ability to sustain his war, a leading European economist said after briefing finance ministers on Tuesday.
The economist, Torbjörn Becker, Director of the Stockholm Institute of Transition Economics, warned that should Russia prevail, European Union governments would have to spend 2-3 times more than they currently do on defense for several years.
Russia's 'financial system, their macroeconomic performance, is under pressure. It's not in balance. Risks are mounting. But it doesn't mean that we can sit back and relax,' Becker told reporters at EU headquarters in Brussels.
He spoke after briefing the bloc's finance ministers to help provide a picture of 'the actual condition of Russia's economy, which significantly contrasts with the narrative promoted by Russian propaganda,' the EU's Polish presidency said.
It said that discussion would help 'us to better shape punitive, financial and economic sanctions against Russia.'
Becker said Russia's economy only accounts for about 12% of the economies of the world's biggest trading bloc. He underlined that it is highly dependent on oil and natural gas revenue, and on imports of high-tech equipment to sustain the war effort.
Still, Russia's economy has outperformed predictions. High defense spending has propelled growth and kept unemployment low despite fueling inflation. At the same time, wages have gone up to keep pace with inflation, leaving many workers better off.
Large recruiting bonuses for military enlistees and death benefits for those killed in Ukraine have also put more income into the country's poorer regions.
Over the long term, inflation and a lack of foreign investments remain threats to the economy. The question is how long Russia's militarized economy can keep going before those issues bite and whether it can hold out for longer than Ukraine and its Western backers.
To hit its economy harder, EU envoys have drafted a new set of sanctions that would target more ships in the shadow fleet of tankers that Russia has deployed to evade a price cap of $60 per barrel imposed on Russian oil by the Group of 7 democracies.
They could also freeze the assets of the Nord Stream II gas pipeline consortium. The pipeline is not in use, but the EU believes the move could help to discourage investment. The sanctions could enter force as soon as Thursday.
'If we can lower oil prices and gas revenues and put tighter sanctions on what they can import, that's great,' Becker said. He said U.S. President Donald Trump should press 'China and India about what they are paying for and what they're exporting to Russia.'
Russia found new markets for its oil in India and China after the EU imposed a near-total ban and continues to earn a substantial part of government revenues from exports of oil and gas.
Becker also urged Trump to hit Russia's financial system by restricting international transactions. 'If something ruins an economy pretty quickly, it's a banking crisis,' he said.
In a recent report, his institute said that Russia's oil revenues decreased dramatically in early 2025, notably due to EU and G7 sanctions on the ghost fleet. This has forced Russia to withdraw from its sovereign wealth fund.
The institute estimates that the liquid part of the fund is now equivalent to less than 3% of GDP. 'If oil prices stay as they are, they will certainly run out of these funds in a year,' Becker said.
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David McHugh reported from Frankfurt, Germany.